Abstract

We start addressing the performance of environmentally related taxes in Argentina, Bolivia and Uruguay and find differences in level and structure with OECD countries but with the common feature that energy taxes are prime contributors. We then model an energy tax reform process out a status quo and towards environmentally related excises, distinguishing between uniform and non-uniform tax components, positive and normative tax structures, and between non-Ramsey and Ramsey specifications. We implement the model after some effort to estimate local and global environmental costs related to energy consumption. We find a rebalancing of fuel taxes (where gasoline and diesel are main drivers) that is robust to the range of price-demand elasticity and environmental cost parameters. Environmental (almost local) gains of the reform are significant, while fiscal impacts are positive and large but do not allow to claim double dividend effects because of price increases of widespread energy inputs triggered by the reform exercise. In the case of Argentina and Bolivia pre-existing distortions in energy prices imply large increases in end-user prices to accommodate not only tax increases but also corrections of producer prices. The assessment of the distributional impact of tax reforms depends on its type (Non Ramsey vs. Ramsey) and on considering environmental benefits to compensate for negative price effects. A Non-Ramsey tax reform has a positive distributive impact in Uruguay, while large pre-existing price distortions tend to produce negative impacts in Argentina and Bolivia. Overall we recommend non-Ramsey taxes as they are more transparent and easy to implement, avoid inverse-elasticity effects on tax wedges that have nothing to do with environmental costs and have better distributional properties. Moving to multiple instruments is also recommended to integrate other externalities, deal with informality and cope with distributive impacts.

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